Why are things suddenly going south at KRA?

There is disquiet at the taxman's tower. Many Kenyans have noticed that things are not fine in tax administration, but for lack of technical know-how, they can't quite pinpoint what exactly is wrong.

Kenya Revenue Authority (KRA) had consistently done very well for over two decades, but then, out of the blue, things started going south.

Were I to be asked to advise the government on tax administration, the first advice that would come to my fingertips would be: please stop rocking the KRA boat without a viable strategy; it has a demoralizing and destabilizing effect on domestic revenue mobilization. It is delicate and tedious to put together the necessary nuts and bolts to ensure that a tax administration operates effectively and efficiently, but it takes only one bad decision to destabilize it.

The current problem at KRA appears to have resulted from one bad decision that sent the wrong signals to the entire tax administration system.

If you want to make changes at the revenue agency, you must observe two things. First, identify what you want to change for strategic reasons, move in and fix it quickly, and let the organization absorb the shock and settle down. Don't keep revenue officers in suspense for an inordinately long period, as doing so gives them reason to worry about their future in the organization. To cushion themselves against uncertainties, they will share the revenue with the exchequer. That is not a remote possibility.

Second, ensure the sustainability of key technical competencies. Take care not to remove technical officers in large numbers at a go. It takes about 7 years to create a critical pool of dependable technical skills in tax administration. The first 2 years are spent at the training school and desk training, and the next 5 years on navigating the delicate ropes of tax administration.

In KRA, a large number of senior staff do not have technical skills in tax administration. They are mere joyriders who can be replaced without much effect on revenue collection.

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In fact, best practice favours outsourcing of most of the non-core responsibilities in tax administration. The technical staff comprise just about 20 per cent of the entire human resource complement. So, it is instructive that any layoffs be done in a manner that neither depletes the critical mass of technical skills nor sends the wrong signals to the remaining technical staff.

I think the current Board-led restructuring has been more whimsical than structured. In their zeal to rid KRA of undesired individuals, the Board has not paid attention to the possible ramifications of their decisions. The suspense at KRA is simply unbearable for most of the revenue officers.

They are waiting to see what finally becomes of the restructuring, which has all the characteristics of an ill-advised, haphazard process. The effects are clear to everyone who cares to see them.

Most outsiders, including the newly appointed board members, think that anyone who goes by the name "Revenue Officer" is trained in revenue administration. The reality, however, is that a lot of officers in the organization were deployed before they received any meaningful training on revenue administration. These officers depend on a daily basis on their trained colleagues for guidance on technical and policy decisions. The professional burden on the relatively few technical officers at KRA is therefore very heavy.

Similarly, a lot of tax accountants and lawyers in private practice believe that they understand tax administration processes. That is not entirely true. Lawyers and accountants may be tax advisors but not tax administrators. What goes on at KRA is tax administration.

Any honest person will accept that tax accounting/advisory and tax administration are very different ball games.

Unlike tax accounting/advisory which deals with the determination of a taxpayer's tax liability, tax administration is the process of designing strategies based on a country's fiscal policy and tax law to mobilize domestic financial resources to underwrite development and recurrent expenditures.

Many people who have been plucked from the private sector and thrust into the deep end of tax administration have struggled to swim ashore. Granted, one or two of them have done a sterling job, but it has more to do with their ability to put together a winning team than their own technical competencies.

One may wonder why the KRA Commissioner General (CG), as the Chief Executive Officer of the revenue agency, requires technical skills. The culprit is the KRA Act, Cap. 49 of the Laws of Kenya, which defines the Commissioner as the Commissioner General. That means that the CG makes technical decisions on behalf of the organization.

At its inception, the KRA Act envisaged that revenue commissioners would be the technical officers while the CG would give the organization the strategic direction.

The Act was amended in order to give the CG a hell of a lot of sweeping powers while holding commissioners accountable for wrong decisions made in their departments! This kind of mismatch between the statutory provisions and practice has created a corporate czar at the helm of KRA. A good number of recent CGs have taken advantage of this law to create hell on earth for the revenue commissioners. I think the KRA Act should be looked at again to realign it with the practical realities of revenue administration.

In distinguishing between the positions of "Chairman of the Board of Directors of KRA" and "Chairman of KRA," the former leads the Board in making strategic decisions, which are then implemented by the CG and his team, while the latter is an executive chairman who runs both the operations and the governance processes of KRA.

In corporate governance, there's a concept known as "Chairman/CEO duality," which refers to a situation where the responsibilities of the Chairman and CEO are vested in one office and discharged by the same person. Such an arrangement creates the position of Executive Chairman.

The KRA Act provides for the position of Chairman of the Board of Directors, not Executive Chairman. Typically, it is a non-executive chairman whose interface with operations is the CEO.

In the past several weeks, however, Kenyans have seen circulars signed by the current Chairman of the KRA Board of Directors purporting to make a raft of technical and policy decisions on behalf of KRA. Such decisions are a clear manifestation of attempts to usurp the powers of the CG and the Cabinet Secretary in charge of the National Treasury without an overt legal anchor.

Such unilateral decisions have caused panic among taxpayers and revenue officers alike. Everyone appears to be waiting, in vain, for guidance from the office of the CG.

Meanwhile, the revenue officers cannot make technical decisions on matters that are the subjects of the Chairman's circular for fear of reprisals. The implications are that a lot of revenue is locked up awaiting the CG's nod while taxpayers are preparing lawsuits against KRA for illegal or delayed decisions that are costing them huge amounts of money in lost opportunities.

The CG, on the other hand, cannot make certain critical decisions without the express authority of the Chairman. Is it any wonder that KRA cannot meet its revenue targets?

Things are not looking very good at the taxman's office. Some courageous Kenyan needs to tell the President to crack the whip and cause the Chairman to shape up. The chairman is largely responsible for the procrastination and lethargy at KRA, a situation that is undermining revenue collection.

So, we have a situation in Kenya where the government is in dire need of increasing amounts of exchequer revenues, but the president's trusted man at the helm of KRA is literally clogging the revenue administration processes! Consequently, the government cannot comfortably meet its domestic and offshore financial obligations.

It is a problem of entrusting gigantic responsibilities to greenhorns. Kenya has all the domestic revenues it requires to run its internal affairs. All that needs to be done is streamline revenue administration processes, embrace taxpayers, and motivate tax collectors. If we get all three right, we will be home and dry as far as tax administration is concerned.

Tax administration is not rocket science. But the government must get it right at the first instance. Mwai Kibaki was precise in the first instance. Uhuru Kenyatta got it right after a rather prolonged learning curve. William Ruto has gotten it wrong in the first instance. It is not too late, though. Things can still be put right at KRA. The ball is in the president's court.

-Prof Ongore teaches business at the Technical University of Kenya (TUK).